Saying “this story still has legs,” Stifel analyst Martin Landry raised his earnings per share estimates for Spin Master Corp. by 14 per cent for both 2022 and 2023 following the release of better-than-anticipated first-quarter results and an increase to its guidance.
“Management seems more open than in the past to deploy capital on larger acquisitions, indicating not being afraid of doing a transformational acquisition,” he added. “Hence, we see a higher likelihood of M&A in 2022 than previously, something which would be welcomed by investors, in our view. Despite the above, we believe that TOY’s capital structure is too conservative and that its valuation multiple would benefit from a dividend and share buyback.”
After the bell on Wednesday, the Toronto-based toymaker reported earnings per share of 55 cents, jumping from 8 cents during the same period a year ago and easily exceeding both Mr. Landry’s 12-cent estimate and the consensus forecast of 16 cents. He attributed the bat to higher revenues and gross profit margin.
Concurrently, the company said it is now expecting low double-digit revenue growth, versus mid- to high-single digits previously, with 40 per cent of the toy gross product sales expected in the first half of the year. That’s up from its historical average of 33-35 per cent.
“Management held presentations on Thursday afternoon discussing the company’s product portfolio and associated outlook,” said Mr. Landry. “The breath of the product portfolio is readily apparent with recent successes in licensing such as Gabby’s Dollhouse and D.C. Comics. Spin-off of Paw Patrol characters are expected in 2023 combined with new series scheduled to air this spring and fall, all of which should continue to sustain the Paw Patrol brand. Overall, we believe the company is well positioned to continue to gain market share in toys and digital games.”
Keeping a “buy” rating for Spin Master shares, which are on Stifel’s top picks list, Mr. Landry raised his target to $62 from $60. The average is $63.50.
“Now with operational issues largely behind the company, we have higher confidence in the ability for TOY to return to and potentially exceed historical levels of profitability,” he said. “Shares of Spin Master are currently trading at a 20-per-cent discount to toy industry peers Mattel and Hasbro on an EV basis, which we think is too wide given Spin Master’s clean balance sheet and our expectation for Spin Master to grow EPS and EBITDA faster.”
Others making changes include:
* Canaccord Genuity’s Luke Hannan to $67 from $60 with a “buy” rating.
* CIBC’s John Zamparo to $63 from $62 with an “outperformer” rating.